Suppose that at the current level of output, price = $12, MC = $4, AVC = $7, and ATC = $11. Which of the following is TRUE?

Question

Quizplus · Accepted Answer

The firm should increase output because at the current level of output, the price of $12 is greater than the average variable cost of $7, so the firm is covering its variable costs and making a contribution to fixed costs and profits. The marginal cost of $4 is less than the price of $12, indicating that the firm can increase its profit by producing additional units. Finally, the average total cost of $11 is less than the price of $12, indicating that the firm is profitable in the short run.

Suppose That at the Current Level of Output, Price =